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5 Stocks to Ride High in Booming Diversified Operations Industry
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Players in the Zacks Diversified Operations industry are benefiting from improving manufacturing activities as most of the pandemic-related restrictions have eased. Also, demand is still strong for medical equipment and personal safety products. Businesses in the defense sector are also flourishing. Product innovation and a surge in the e-commerce business are tailwinds.
However, challenges in the aviation industry are hurting a few players. Also, a hike in raw material costs and supply-chain issues are expected headwinds for players with exposure in the industrial market. Five companies namely Danaher Corporation (DHR - Free Report) , Carlisle Companies Incorporated (CSL - Free Report) , ITT Inc. (ITT - Free Report) , Crane Co. (CR - Free Report) and Griffon Corporation (GFF - Free Report) exhibit strong earnings growth potential.
About the Industry
The Zacks Diversified Operations industry includes companies that operate in various end-markets, including oil & gas, industrial, electronics, power, aviation, technology, finance, healthcare, non-residential construction, and transportation. Such companies manufacture and provide equipment and solutions, including bioprocessing products, molecular testing-related products, gas and steam turbines, generators, commercial jet engines, and engineered fluid-process equipment. Also, the players provide related services to a vast customer base. In addition, there are a few companies, which provide services in the agriculture, marine and telecommunications markets and are engaged in providing environmental and safety solutions. The diversified market operators have a vast global presence, with exposure in markets of the United States, Japan, India, China, Canada and others.
Pandemic-Induced Demand in Medical and Safety Markets: Beside jeopardizing operations of most of the industry players over months, the pandemic has created growth opportunities for a few companies, especially for those with exposure to medical equipment and personal safety markets. Notably, demand has been strong for face masks, test equipment, personal protective equipment, sanitizers and other products since the initial outbreak. Industry player Danaher anticipates solid demand for bioprocessing (Cytiva and Pall Biotech) and molecular testing (Cepheid) products in the quarters ahead. Also, demand is sound for ventilators, imaging and ultrasound products.
Other Tailwinds: Improving operating conditions, as evident from increasing manufacturing activities and healthy demand, will be boons for companies with exposure in industrial manufacturing. It is worth mentioning here that industrial production in the United States advanced 16.3% year over year in May 2021. Also, businesses from defense customers have been quite healthy for companies like Honeywell International Inc. (HON - Free Report) . In addition to these, growing online businesses and the government’s development efforts are likely to bode well for the industry.
Persistent Pandemic-Related and Other Woes:End-market challenges caused by the pandemic are still concerning for many industry players. Travel restrictions imposed across countries have adversely impacted the prospects of the aviation industry, especially commercial aviation. General Electric Company’s (GE - Free Report) aviation business is predicted to remain pressured from market challenges for the rest of 2021. Also, Honeywell expects lower international air transport flight hours as well as build rates of original equipment to adversely impact product demand. In addition, some players are dealing with highly leveraged balance sheets, strained trade relations and fluctuating foreign currencies. Also, companies with exposure to the industrial market might have to deal with supply-chain-related restrictions, rise in raw material costs and higher freight charges.
Zacks Industry Rank Reflects Healthy Prospects
The Zacks Diversified Operations industry is a 20-stock group within the broader Zacks Conglomerates sector. The industry currently carries a Zacks Industry Rank #45, which places it in the top 18% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of solid earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. The industry’s earnings estimates for 2021 have increased 15.90% in the past year.
We will present a few stocks that you may consider for your portfolio. But it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms S&P 500
The Zacks Diversified Operations industry’s performance has been better than the S&P 500 over the trailing 12 months. The stocks in the industry have collectively gained 45.8% compared with the S&P 500’s growth of 35.7%.
Past Year’s Price Performance
Diversified Operations Industry's Valuation
EV/EBITDA ratio is commonly used for valuing companies with diversified operations.
The industry’s forward 12-month EV/EBITDA ratio is 30.65. This multiple is way above the S&P 500’s 17.23.
Over the past five years, the industry has traded at the highest level of 33.40X forward 12-month EV/EBITDA and the lowest level of 16.80X. The median level was 23.20X over the same period.
Industry’s EV/EBITDA Ratio (Forward 12-Month) Versus S&P 500
5 Diversified Operations Stocks Worth Considering
Below we have discussed five stocks from the industry, which have solid earnings growth potential. The chosen companies currently sport a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Danaher: The company makes and sells industrial, consumer, professional and commercial products. It benefits from growth opportunities within the Life Sciences and Diagnostics segments. It currently has a Zacks Rank #2 and a market capitalization of $183.3 billion.
Shares of this Washington, DC-based company have gained 46.9% in the past year. Its earnings surprise for the last four quarters was 31.34%, on average. Also, the company’s earnings estimates have improved 19.5% for 2021 in the past 60 days.
Price and Consensus: DHR
Carlisle: The Scottsdale, AZ-based company engages in manufacturing and providing roofing and waterproofing products, finishing equipment, engineered products, and brake as well as friction system solutions. Growth opportunities within medical technologies and the strengthening U.S. infrastructure market as well as buyouts are likely to aid the company in the quarters ahead. The company, with a market capitalization of $9.3 billion, presently sports a Zacks Rank #1.
Shares of the company have gained 49.1% in the past year. Its earnings surprise was 51.52%, on average, for the last four quarters. Also, the company’s earnings estimates have improved 29.6% for 2021. Price and Consensus: CSL
ITT: The New York-based company engages in the design, manufacture and sale of a wide range of engineered products and services. A well-diversified business structure, focus on innovation, healthy liquidity and cost-reduction measures are likely tailwinds for the company. It presently has a market capitalization of $7.5 billion and a Zacks Rank #2.
Shares of the company have gained 57.6% in the past year. Its average earnings surprise for the last four quarters was 26.36%. In the past 60 days, the company’s earnings estimates have moved up 4.9% for 2021.
Price and Consensus: ITT
Crane: The company makes and sells engineered industrial products for use in automated payment solutions, aerospace, power, electronics, general industrial and other end markets. Its growth opportunities in the near term are healthy in the general industrial, chemical and pharmaceutical end markets. It currently has a Zacks Rank #2 and a market capitalization of $5.1 billion.
Shares of the Stamford, CT-based company have gained 55.8% in the past year. Its earnings surprise for the last four quarters was 20.67%, on average. Also, the company’s earnings estimates have improved 12.7% for 2021 in the past 60 days. Price and Consensus: CR
Griffon: The New York-based company is primarily a management and holding company operating through its subsidiaries. Product innovation, solid manufacturing capabilities, specialized household and building products, and a surge in the e-commerce business are expected to aid the company’s performance. It presently has a market capitalization of $1.4 billion.
Shares of this Zacks Rank #1 company have gained 38.5% in the past year. In the last four quarters, it delivered an earnings surprise of 122.71%, on average. In the past 60 days, the company’s earnings estimates have moved up 9.8% for fiscal 2021 (ending September 2021).
Price and Consensus: GFF
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Image: Bigstock
5 Stocks to Ride High in Booming Diversified Operations Industry
Players in the Zacks Diversified Operations industry are benefiting from improving manufacturing activities as most of the pandemic-related restrictions have eased. Also, demand is still strong for medical equipment and personal safety products. Businesses in the defense sector are also flourishing. Product innovation and a surge in the e-commerce business are tailwinds.
However, challenges in the aviation industry are hurting a few players. Also, a hike in raw material costs and supply-chain issues are expected headwinds for players with exposure in the industrial market. Five companies namely Danaher Corporation (DHR - Free Report) , Carlisle Companies Incorporated (CSL - Free Report) , ITT Inc. (ITT - Free Report) , Crane Co. (CR - Free Report) and Griffon Corporation (GFF - Free Report) exhibit strong earnings growth potential.
About the Industry
The Zacks Diversified Operations industry includes companies that operate in various end-markets, including oil & gas, industrial, electronics, power, aviation, technology, finance, healthcare, non-residential construction, and transportation. Such companies manufacture and provide equipment and solutions, including bioprocessing products, molecular testing-related products, gas and steam turbines, generators, commercial jet engines, and engineered fluid-process equipment. Also, the players provide related services to a vast customer base. In addition, there are a few companies, which provide services in the agriculture, marine and telecommunications markets and are engaged in providing environmental and safety solutions. The diversified market operators have a vast global presence, with exposure in markets of the United States, Japan, India, China, Canada and others.
What's Shaping Diversified Operations Industry's Future?
Pandemic-Induced Demand in Medical and Safety Markets: Beside jeopardizing operations of most of the industry players over months, the pandemic has created growth opportunities for a few companies, especially for those with exposure to medical equipment and personal safety markets. Notably, demand has been strong for face masks, test equipment, personal protective equipment, sanitizers and other products since the initial outbreak. Industry player Danaher anticipates solid demand for bioprocessing (Cytiva and Pall Biotech) and molecular testing (Cepheid) products in the quarters ahead. Also, demand is sound for ventilators, imaging and ultrasound products.
Other Tailwinds: Improving operating conditions, as evident from increasing manufacturing activities and healthy demand, will be boons for companies with exposure in industrial manufacturing. It is worth mentioning here that industrial production in the United States advanced 16.3% year over year in May 2021. Also, businesses from defense customers have been quite healthy for companies like Honeywell International Inc. (HON - Free Report) . In addition to these, growing online businesses and the government’s development efforts are likely to bode well for the industry.
Persistent Pandemic-Related and Other Woes: End-market challenges caused by the pandemic are still concerning for many industry players. Travel restrictions imposed across countries have adversely impacted the prospects of the aviation industry, especially commercial aviation. General Electric Company’s (GE - Free Report) aviation business is predicted to remain pressured from market challenges for the rest of 2021. Also, Honeywell expects lower international air transport flight hours as well as build rates of original equipment to adversely impact product demand. In addition, some players are dealing with highly leveraged balance sheets, strained trade relations and fluctuating foreign currencies. Also, companies with exposure to the industrial market might have to deal with supply-chain-related restrictions, rise in raw material costs and higher freight charges.
Zacks Industry Rank Reflects Healthy Prospects
The Zacks Diversified Operations industry is a 20-stock group within the broader Zacks Conglomerates sector. The industry currently carries a Zacks Industry Rank #45, which places it in the top 18% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of solid earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. The industry’s earnings estimates for 2021 have increased 15.90% in the past year.
We will present a few stocks that you may consider for your portfolio. But it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms S&P 500
The Zacks Diversified Operations industry’s performance has been better than the S&P 500 over the trailing 12 months. The stocks in the industry have collectively gained 45.8% compared with the S&P 500’s growth of 35.7%.
Past Year’s Price Performance
Diversified Operations Industry's Valuation
EV/EBITDA ratio is commonly used for valuing companies with diversified operations.
The industry’s forward 12-month EV/EBITDA ratio is 30.65. This multiple is way above the S&P 500’s 17.23.
Over the past five years, the industry has traded at the highest level of 33.40X forward 12-month EV/EBITDA and the lowest level of 16.80X. The median level was 23.20X over the same period.
Industry’s EV/EBITDA Ratio (Forward 12-Month) Versus S&P 500
5 Diversified Operations Stocks Worth Considering
Below we have discussed five stocks from the industry, which have solid earnings growth potential. The chosen companies currently sport a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Danaher: The company makes and sells industrial, consumer, professional and commercial products. It benefits from growth opportunities within the Life Sciences and Diagnostics segments. It currently has a Zacks Rank #2 and a market capitalization of $183.3 billion.
Shares of this Washington, DC-based company have gained 46.9% in the past year. Its earnings surprise for the last four quarters was 31.34%, on average. Also, the company’s earnings estimates have improved 19.5% for 2021 in the past 60 days.
Price and Consensus: DHR
Carlisle: The Scottsdale, AZ-based company engages in manufacturing and providing roofing and waterproofing products, finishing equipment, engineered products, and brake as well as friction system solutions. Growth opportunities within medical technologies and the strengthening U.S. infrastructure market as well as buyouts are likely to aid the company in the quarters ahead. The company, with a market capitalization of $9.3 billion, presently sports a Zacks Rank #1.
Price and Consensus: CSL
Shares of the company have gained 49.1% in the past year. Its earnings surprise was 51.52%, on average, for the last four quarters. Also, the company’s earnings estimates have improved 29.6% for 2021.
ITT: The New York-based company engages in the design, manufacture and sale of a wide range of engineered products and services. A well-diversified business structure, focus on innovation, healthy liquidity and cost-reduction measures are likely tailwinds for the company. It presently has a market capitalization of $7.5 billion and a Zacks Rank #2.
Shares of the company have gained 57.6% in the past year. Its average earnings surprise for the last four quarters was 26.36%. In the past 60 days, the company’s earnings estimates have moved up 4.9% for 2021.
Price and Consensus: ITT
Crane: The company makes and sells engineered industrial products for use in automated payment solutions, aerospace, power, electronics, general industrial and other end markets. Its growth opportunities in the near term are healthy in the general industrial, chemical and pharmaceutical end markets. It currently has a Zacks Rank #2 and a market capitalization of $5.1 billion.
Shares of the Stamford, CT-based company have gained 55.8% in the past year. Its earnings surprise for the last four quarters was 20.67%, on average. Also, the company’s earnings estimates have improved 12.7% for 2021 in the past 60 days.
Price and Consensus: CR
Griffon: The New York-based company is primarily a management and holding company operating through its subsidiaries. Product innovation, solid manufacturing capabilities, specialized household and building products, and a surge in the e-commerce business are expected to aid the company’s performance. It presently has a market capitalization of $1.4 billion.
Shares of this Zacks Rank #1 company have gained 38.5% in the past year. In the last four quarters, it delivered an earnings surprise of 122.71%, on average. In the past 60 days, the company’s earnings estimates have moved up 9.8% for fiscal 2021 (ending September 2021).
Price and Consensus: GFF
Infrastructure Stock Boom to Sweep America
A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.
The only question is “Will you get into the right stocks early when their growth potential is greatest?”
Zacks has released a Special Report to help you do just that, and today it’s free. Discover 7 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.
Download FREE: How to Profit from Trillions on Spending for Infrastructure >>